Conagra Brands (NYSE:CAG) executives used the company’s fiscal third-quarter 2026 earnings Q&A to emphasize improving volume trends in key categories, outline how management is thinking about potential inflation scenarios, and provide detail on cost visibility and fourth-quarter expectations.
Management reiterates volume-first approach, with flexibility if inflation returns
CEO Sean Connolly said the company shifted its strategy earlier than some investors may remember, noting that Conagra “pivoted to a focus on restoring volume growth in frozen and snacks” at the beginning of fiscal 2024, “even if it meant eating some inflation and enduring some margin compression.” Connolly said the approach has “proven to be quite effective,” pointing to volume trajectory improvements in most quarters and adding that the company was “pleased to see our total portfolio growing again this quarter.”
Connolly also highlighted that the company has taken pricing on certain areas this year—“our canned foods and our cocoa-oriented products”—and said “the elasticities have been quite encouraging.” However, he cautioned it was “too early to speculate on a particular course of action” for fiscal 2027, citing the time remaining before the company provides guidance.
Pricing, private label, and the “horses for courses” portfolio strategy
Asked about pricing power and private label dynamics, Connolly said Conagra “under index[es] in terms of private label development” in its categories and described private label as “almost non-existent in our biggest business, which is frozen meals.”
He reiterated what he called a “horses for courses strategy,” with growth businesses such as frozen and snacks focused on volume recovery, while staples are managed for “cash maximization.” Connolly characterized the company’s approach to pricing as “surgical,” saying Conagra has taken “inflation justified price” in categories such as canned foods and has seen “good elasticity.”
Connolly added that after years of inflation-driven pricing across the industry, investors pushed companies to demonstrate volume recovery. “We have done that,” he said, arguing that Conagra’s “portfolio responsiveness…has outpaced our peers,” which he attributed to “good value” and “exciting innovation.”
Fourth-quarter outlook: shipments, organic sales growth, and margin building blocks
On the relationship between shipments and consumption, Connolly urged analysts not to overinterpret quarterly movement given recent disruptions and timing shifts. He said that over fiscal 2025 and fiscal 2026 combined, Conagra is “basically shipping almost exactly to consumption,” describing quarter-to-quarter patterns as “a bit lumpier” due to last year’s supply interruption and merchandising timing shifts in frozen.
CFO David Marberger said the company expects “positive organic net sales growth in Q4,” which he said is implied by the full-year organic outlook. He also said consumption and shipments “should be more in line in Q4,” and noted that Conagra expects to begin shipping more of its innovation slate in the quarter.
Marberger said the company expects an operating margin “inflection from Q3 to Q4,” citing several contributors:
- A&P as a percentage of sales expected to be lower in Q4 than in Q3 and “more in line with that kind of 2.5% average.”
- Leverage from the 53rd week.
- Seasonality and timing effects, including trade, productivity, and inflation.
When asked whether the implied Q4 margin level could be a starting point for fiscal 2027, Marberger declined to comment on next year’s guidance. He said, however, that he felt good the company was now guiding “to the higher end” of its operating margin range for the current year, attributing performance to the company being “pretty much on” its inflation and tariff assumptions and to productivity programs that are “really delivering.”
Cost visibility and inflation inputs: hedging coverage, freight, and tariffs
Marberger provided detail on Conagra’s materials coverage for fiscal 2027, saying it is “generally consistent with the prior years at this point.” He said the company is “roughly 60% covered” for Q1 and “roughly 40% covered for the full fiscal year,” across total materials.
He said Conagra has more coverage than typical in areas including “steel” and “freight,” noting that the company contracts line haul and that it represents “a big percentage” of freight. He also cited better coverage on some crop-based ingredients, while noting “a little bit less coverage on diesel fuel.” Proteins were described as the lowest-coverage area, with only “about 15% covered” for next year, reflecting more spot-market exposure.
On freight, Marberger said spot rates were low for much of the year but “have now spiked up and [are] above” contracted rates. He said Conagra has incorporated the freight environment into its fiscal 2026 guidance and reiterated that a high percentage of freight is contracted line haul, with a smaller spot component.
Discussing tariffs, Marberger said Conagra’s initial inflation framework for the year was “7%, 4% was core, and 3% were gross tariffs before mitigation.” He said the company estimated “1% in mitigation,” tracked as part of productivity, and that the overall inflation picture has “pretty much played out,” with some offsetting favorable and unfavorable elements. Looking to next year, Marberger said there will be some headwind because the company will be “wrapping up the mitigation” benefits that helped this year, though he said he does not expect the headwind to be as large as $80 million and suggested it “might be more like half of that.”
Ardent Mills, chicken capacity investments, and free cash flow focus
Marberger addressed changes related to Ardent Mills, describing two sources of profit: a more consistent core flour milling margin and a more variable “commodity trading revenue” stream dependent on wheat prices and market volatility. He said wheat prices had been low with less volatility through the first three quarters, reducing trading opportunities. Since the start of the war, he said wheat futures and volatility have increased, but benefits do not appear immediately and Conagra does not yet have “line of sight” on next year’s impact.
Connolly also weighed in on potential fertilizer-related pressures, telling analysts that fertilizer would be “more of an FY 2028 event than FY 2027,” and described current conversations with partners as “very productive,” while emphasizing how dynamic conditions remain.
On supply chain investments tied to chicken, Connolly said both baked/roasted and fried chicken projects “are tracking right where we need them to be,” with an opportunity over time to “bring [outsourced production] back in as a good guy to our margins.” Marberger added that the bake-side project has been completed and that Conagra is starting to bring volume back this year, with a “full year” benefit expected next year, while fried-related investments extend further out.
Marberger also emphasized free cash flow as a cultural priority, noting that Conagra raised its conversion target to “105% from 100%.” He said free cash flow is part of the incentive plan for compensated employees and cited drivers including cash tax efficiency, working capital improvements, and inventory reductions. He said Conagra has about $2 billion of inventory and views “a long runway” to continue reducing it, including through “Project Catalyst” and the use of AI and other technology tools.
Regarding Ardent Mills distributions, Marberger said the company typically sets a payout ratio for the year and revisits it as performance and balance sheet considerations evolve. This year, he said Ardent’s earnings fell but the dividend was kept “to plan,” pushing the payout ratio above 100%, and he noted the dividend and equity earnings are generally “reset” each year to align at the start of the period.
About Conagra Brands (NYSE:CAG)
Conagra Brands, Inc is a leading packaged foods company based in Chicago, Illinois, with a broad portfolio of shelf-stable, frozen and refrigerated foods marketed under familiar brands. The company develops, produces and distributes a wide range of consumer food products, serving both retail grocery and foodservice channels. Conagra’s product lineup includes frozen entrees, snacks, condiments, baking goods and desserts, providing convenient meal solutions for consumers across North America and select international markets.
Among its well-known brands are Birds Eye, Healthy Choice, Lean Cuisine, Marie Callender’s and Banquet in the frozen foods category, as well as Hunt’s sauces, Orville Redenbacher’s popcorn, Slim Jim meat snacks and Reddi-wip toppings.
